March 30, 2016
Do the contests with the largest prizes attract the most-able contestants? To what extent do contestants avoid competition? In this paper, we show, theoretically and empirically, that the distribution of abilities plays a crucial role in determining contest choice. Complete sorting exists only when the proportion of high-ability contestants is sufficiently small. As this proportion increases, high-ability contestants shy away from competition and sorting decreases, such that, reverse sorting becomes a possibility. We test our theoretical predictions with a large panel data set containing contest choice over twenty years. We use exogenous variation in the participation of highly-able competitors to provide empirical evidence for the relationship among prizes, competition, and sorting.
J.E.L classification codes: L20, M52, D02
Keywords:Contests, Competition, Sorting, Incentives